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Amazon Prime Adds Ad-Supported: Not Too Late for Tiers

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September 22 brought the unsurprising news that Amazon will soon join Netflix, Disney+, and Max by adding an ad-supported subscription tier for viewing its premium content in the U.S., the U.K., Germany, and Canada. Prime being Prime—with not just the transitory, churn-susceptible thrills of The Last of Us and Yellowjackets to keep its loyal viewers on the hook, but the addictive allure of 2-day shipping—is slightly inverting the approach its fellow top-tier titans have taken. Instead of offering a reduced subscription price for those budget-conscious viewers who are willing to suffer through a few ads in their premium shows, Amazon is making the ad tier the default and tacking on $2.99 to its ad-free tier.

At this fairly early stage, it would be generous to describe the hybrid-subscription model ventures that have debuted over the last year as “mixed” successes. Netflix reported 1.5 million ad-tier subscribers in its latest Q2 earnings call; not only does that place the company 38.5
million shy of the 40 million goal it announced last year, it also locates this high-major platform deep in the minor leagues when it comes to competing for ad buys based on reach alone.

Given that Amazon reported nearly $38 million in ad revenue in 2022 and that it already has a thriving FAST platform in Freevee to monetize
lower-priority longtail content, adding an ad tier to Prime is hardly a make-or-break proposition. It’s a move that’s more opportunistic than desperate. With any ad placed in Prime Video programming tethered to single-click sale and delivery—again, something none of its streaming platform peers can compete with—Amazon Prime advertising boasts a value proposition that transcends slow-growing reach.

Amazon’s news came in hot on the heels of a frenetic long weekend at IBC 2023, which was dominated by buzz about generative AI that intermittently yielded to discussions of content monetization (which invariably referenced AI). A couple of those discussions stand out, including one with Dan Marshall, Amagi’s EVP of worldwide sales, about the evolution of FAST from a vehicle for monetizing “library” (read: older, niche) content to a platform that increasingly features live programming with its higher associated CPMs. But where the platform really needs to advance, Marshall argues, is in the enhancement of the “digital linear experience,” transforming it from the leanback wing of the streaming world to a medium suffused with increased interaction with the content, gamification elements, and even augmented reality that give viewers a “personal connection to the event.”

He also discussed the need to offer more varied and integrated ad placement options—a necessity in live broadcasts of sports that aren’t cadenced for periodic ad breaks—with lower-third ads, squeezebacks, and the like. “Advertising is going to have to change as expectations have changed,” Marshall said.

A bit closer to the monetization challenges that have driven the likes of Netflix and Disney into the ad-tier business is the flat-out failure of SVOD to subsidize ambitious premium original content models. As a June 2023 Vulture article flatly states, “There may be no problem more foundational than the way the system monetizes its biggest hits: It doesn’t.”

At this point, managing subscriptions more intelligently might amount to nothing more than rearranging the deck chairs for the selfimperiled Big 5. But that doesn’t mean other content companies with investments in SVOD can’t operate more effectively.

I had a fascinating discussion with Evergent Technologies CEO Vijay Sajja about “churn prediction” and “churn deflection.” Sajja discussed how Evergent uses AI/ML to leverage proprietary subscriber data to identify the moment when subscribers are likely to churn, improve engagement offers, and choose the right promotion or method to keep them in the fold.

It’s encouraging to learn about these strategies, as well as applications for well-trained and trustworthy AI. It’s also well worth remembering that despite all of the headline-grabbing antics of the Big 5, there are many, many more SVOD companies populating the streaming ecosystem that face everyday challenges with monetization and subscriber retention, but don’t grieve on the same gilded chair as the billion-dollar major studios that perpetually cry poor.

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